Whether you like it or not, loans are a part of our lives in one way or another. They can help in the short-term with either being able to buy items that you need, such as food, or even with paying your bills. However, in the long-term you can have the difficulty of finding the money to pay back this loan along with any interest those loans may have on them. However, this isn’t the only difficulty with loans as if you need to take out another loan in the future, what you may find difficult is being able to secure the new loan. 

High Debt

One reason why you can’t get accepted for a loan anywhere is because you have too much of a high debt-to-income ratio. What this means is that each month you will earn a certain amount from your job and if you pay a high amount on this income on loan repayments such as your mortgage, car loans, or paying off your credit card, this is going to affect the likelihood of you being able to secure a loan. Most lenders won’t give you a loan if your debt-to-income ratio is over 43%, i.e., the amount of debt you pay is 43% of your income. However, it is recommended to keep this ratio below 36%. In a lot of cases, you may not always be able to control what your outgoings are in regards to your debt, but if you know there is a likelihood you are going to need to take a loan out in the future, you can possibly reduce your debt-to-income ratio by choosing a car that doesn’t have a high loan repayment or trying not to spend as much on any credit cards you might have. 

No Credit Profile

Another reason could be that you either don’t have a credit profile or that you have a bad credit profile. If you have no credit profile, it’s highly unlikely you’ll be able to get a loan as the lenders you’re going to aren’t going to know anything about your credit, including knowing how good you are at repaying money you’ve borrowed. This is likely to have happened if you don’t have or use a credit card and can easily be solved by getting a credit card. Even if you don’t use your credit card for big purchases and only use it to pay for your food shop or even to pay for your subscriptions. By doing this, you will then be able to pay off what you have bought using your credit card and this will give lenders an idea of how capable you are of paying off money that you’ve borrowed.

Poor Credit Score

On the flip side of this, it may be that you have a bad credit score. This is caused by being late with paying off previous loans, applying for credit far too often, and even identity theft. This means lenders are less likely to loan you the money you need as they are going to see you as too much of a risk in being able to pay this loan back on time. This can be improved by ensuring you pay back any loans or bills you may take out on time and making sure that all the information that is filled out on your account is correct as even the smallest of mistakes, such as putting down the wrong house number, could cause your credit rating to go down. In the same respect as this, it has also been found that if you are someone who moves home a lot, this may also affect your credit rating as. If lenders see a constant change in your address, they are going to come to assumptions about why this may be. Even though in some circumstances, this can’t be helped, they might believe that you are having to move home because you can’t keep up with paying your rent, and if they assume that you can’t pay your rent, they’re also going to assume that you won’t be able to repay any loan payments they lend you. Finally, it’s likely in the circumstances like this that some fraudulent activity may have been going on in your account, and if someone is able to gain access to your details, they might be able to use them for fraud. This means that you will want to ensure that your details are secure so that no one can access them and use them to affect your credit score in a negative way. 

Whatever the reason for you being declined for a loan, it can become very frustrating, particularly if it happens repeatedly. Luckily, as outlined in this article, there are multiple ways you can try and work around this to improve your credit score so that, with time, you will be able to get the loan you need.

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